Accelerating the Adoption of RegTech

The ‘Kalifa Review of UK FinTech’ was conducted on behalf of The City of London Corporation, and at the behest of Her Majesty’s Treasury, and could not have come at a more opportune time. It raises many questions on how the UK can maintain its place as the world FinTech hub, especially in the wake of Brexit. In this article, I will delve into the issues raised in the report and propose potential solutions to these questions, from the perspective of an established and successful RegTech provider.

Posted on July 5, 2021
Written by Adam Holden

Kalifa Review of UK Fintech

Where now for UK Regtech, following the Kalifa Review?

The dust has had time to settle on the much-awaited publication of the Kalifa Report on the UK Fintech industry. The report, by Ron Kalifa, was conducted on behalf of The City of London Corporation, and at the behest of Her Majesty’s Treasury, and could not have come at a more opportune time. The UK Fintech industry has been at a crossroads for some time now, with the build-up and uncertainty around Brexit and how it would affect the position of the City of London in the global financial industry. That, coupled with an unexpectedly coy reaction to the introduction of Fintech within the larger financial institutions, has led to some stagnation in the sector, triggered by disappointment and incredulity at this attitude within Fintech and Regtech circles.

So, why have the biggest financial institutions, by and large, shied away from the benefits that Fintech and Regtech can bring, particularly in the ongoing fight against money laundering and other financial crime; and what can, and should, be done about it, and by whom?

So, what have been the main issues within RegTech?

Digital transformation is nothing new. Financial organisations have been looking into the potential benefits of digitising their systems for a number of years, but many have been hamstrung by a number of issues, mainly around the perceived costs and potential upheaval that introducing new systems could bring. Many recognise the clear benefits that digitisation would bring. This being in the form of better business intelligence, and more efficient and effective systems, combined with greater efficiency and accuracy within compliance departments.  There could also be improved adherence to their AML responsibilities, but they have still been reluctant to engage constructively with Regtech providers. 

This reluctance is often based on the anticipated difficulty in updating operations that are too often ‘stuck in the dark ages’! Saddled with a proliferation of legacy systems that don’t talk to each other, combined with disjointed – and sometimes misguided – technology strategies, a palpable fear is generated in some organisations around the costs and upheaval involved in considering a digital solution. Whilst Fintech solutions, of themselves, are less of an issue, because individual systems don’t necessarily have to speak to each other in order to get value from digital solutions, Regtech solutions are a different matter, in that they need to look at the whole customer base in order to be fully effective.

Alongside these concerns is a view that “why try and fix it, if it’s not broken, its complex and how can the manual processes be unravelled and replaced by new technology”. Okay, yes, compliance teams are hard-pressed to keep up with the volume of work. It’s difficult for them to juggle the data flowing from a number of disparate systems, which, in turn, means that errors do creep in, and some issues are missed. But if the systems aren’t reporting accurately, and the Authorities aren’t ‘cracking the whip’, why saddle themselves with the potential disruption brought on by the systems and processes upheaval that digitisation might bring?

A misguided view propagated by a fear of doing something

But what Regtech providers need to get across, is that it doesn’t have to be a painful experience and that the huge benefits far outweigh any upheavals that may occur. The Kalifa report clearly outlined the benefits that increased adoption of Regtech would have on the UK FinServs industry and there’s nothing there that Regtech providers haven’t been ‘banging on about’ for years, but with a smaller voice:

  • Quicker, more efficient on-boarding. Digital systems have effectively banished the 5-day turnaround for onboarding new clients, with automated, remote verification, using instant access to nationwide and worldwide databases to enable accurate onboarding decisions to be made within hours, if not minutes. The accuracy and efficacy of remote document scanning, biometrics and facial recognition have all improved in leaps and bounds in recent years, giving onboarding teams greater confidence in their digital KYC/KYB onboarding processes and the outcomes
  • Confidence in Compliance outcomes. One of the key issues with manual systems is the opportunity for human error, particularly when teams are under pressure dealing with high volumes of records. Digitization brings huge advances in liveness detection and anti-spoofing, that supports all the other advances in remote verification, biometrics and facial recognition, ensuring that bad actors cannot now easily get around the digital checks. No system is fool-proof, as criminals are making advances in technology at least as quickly as the anti-money launderers, but Compliance teams can have far greater confidence in the outcomes than they ever could have had when relying on manual systems
  • Increased time to spend on remediation. Remediation and monitoring of client records is an essential part of compliance, but too often, when onboarding work volumes reach a peak, there is a temptation to revert to ‘remediation lite’. This is a dangerous, but inevitable, consequence of increased workloads, that can lead to companies getting into serious trouble with the regulators. But implementing a digital solution not only reduces the amount of errors, making the onboarded data more accurate, but also frees up time for the Compliance team to run the necessary checks and inevitable investigations regularly and more completely. With a digital solution there is far greater scope for Insightful data and meaningful reporting which in turn will reduce the cases for remediation.
  • Improvements in Customer Service experience. As we all know, in this brave new technological world, and particularly since Covid entered our lives, customers expect and demand only the best purchasing and service experience. That’s not a bad thing, but it does mean that anyone who cannot deliver on promises, or the expected levels of service, is going to suffer in comparison to their peers. As a natural consequence of this, anyone who is falling behind on the digital revolution, is going to find it difficult to compete. Customers have gotten used to being able to sign-up to new services and offers immediately, without having to wait days for verification and aren’t prepared to put up with anything less. They want services and products that are transparent and are prepared to look at upgrades and add-ons offered by suppliers they trust and who have proven that they can deliver.

The Future of compliance: Digital Transformation Meets Regulation

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The future of Regtech needs to be brought forward

The Ron Kalifa report and recommendations goes much wider than the Regtech question, but it does encompass it. Clearly the report outlines that there is an enormous opportunity for the UK Financial Services industry to grab a lead, certainly over the rest of the EU, and potentially over the world, by pursuing an aggressive and co-ordinated plan to develop the market and take advantage of technology. That requires FinServs companies to jump into the 21st century and go ahead in adopting the wonderful new technologies offered by the Fintech and Regtech providers.

But, by their very conservative nature, the leading exponents are unlikely to do so of their own accord – let’s face it, the Titanic was never going to sink, was it?

No, it needs both the Government, through legislation, and the regulators, through regulation, to make it impossible for them to ignore the new digital revolution that is already upon us and is ‘open for business’. Once that is done, suddenly all FinServs companies will realise the opportunities that are available to them in a rapidly expanding marketplace – thus enabling both Fintech and Regtech providers to get their voices heard.

The future is bright for the UK Financial Services market, if only someone would turn on the light!

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